The Following Data Concerns a Proposed Equipment Purchase Assuming That Net Cash Flows Are Received Evenly Throughout the l

question 69

Multiple Choice

The following data concerns a proposed equipment purchase.
$$\begin{array} { l r } \text { Cost } & \$ 58,000 \\\text { Salvage value } & \$ 3,000 \\\text { Estimated useful life } & 5 \text { years } \\\text { Annual net cash flows } & \$ 18,000 \\\text { Depreciation method } & \text { Straight-line }\end{array}$$
Assuming that net cash flows are received evenly throughout the year, the accounting rate of return is:

• A) 24.13%.
• B) 20.98%.
• C) 22.95%.
• D) 59.00%.
• E) 25.45%.

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Definitions:

Perfect Competition

Perfect competition is a market structure where many firms offer a homogeneous product or service, and no single firm can influence the market price.

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity demanded by consumers over a range of prices.

Perfectly Elastic

describes a demand or supply scenario where quantity demanded or supplied changes infinitely in response to any change in price.

Efficient Level of Output

The quantity of production that maximizes the difference between total revenue and total cost, or equivalently, minimizes average total cost.